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A small piece of news that went unnoticed yesterday was a report from Reuters that Google (NASDAQ:GOOG) may be in trouble with U.K. tax authorities. The issue is not new, and similar stories have been in the news for some time now. The issue at hand is legal tax avoidance by big multinational companies.

According to Reuters, Google faced angry questions from British lawmakers investigating its tax affairs, and whether it had misled the U.K. parliament last year. The U.K. parliament's Public Accounts Committee called Google's Northern European top executive, Matt Brittin, for a second time to testify about an investigation that showed Google employed staff in London, even when Brittin had said that Google was not selling to U.K. clients directly.

Google had told the U.K. parliament that all Google sales were conducted from Ireland, which gives Google the ability to shelter profits to its Bermuda subsidiary. However, the U.K. parliament was approached by a whistle-blower claiming Google did indeed hire its own ad sales personnel in the U.K., and therefore, cannot take advantage of its Irish subsidiary.

Ernst & Young, Google's auditor, which was also questioned by the U.K. parliament, said there was a gray area on promoting products and concluding sales in Britain, which would, "most likely, create a taxable presence for a company in London."

According to the U.K. parliament's Public Accounts Committee, Google has generated $18 billion in revenues in the U.K. from 2006 to 2011, but paid only $16 million in taxes.

And it's not only Google. Apple (NASDAQ:AAPL), Starbucks (NASDAQ:SBUX) , Microsoft (NASDAQ:MSFT) and even Nokia (NYSE:NOK) -- among many -- have all been the target of such tax avoidance investigations from many governments around the world.

But now the issue is reaching a breaking point, and it seems many countries around the world are calling for a comprehensive agreement on the issue so they can get their hands on all that tax money, which companies like Google don't pay anywhere (even in the U.S.).

And just to show you how far things have progressed, in another report from Reuters, the OECD sees action on behalf of many countries on corporate tax avoidance.

National austerity measures taken by OECD member governments as a result of the financial crisis have sparked voter anger at the way big international companies shift profits around the world to cut their tax bills. As a result they have asked the OECD to draft proposals to tackle problems like double-tax agreements, transfer pricing and the exchange of information between tax jurisdictions.

The OECD is due to deliver its recommendations at the July Group of 20 meeting. These have not yet been agreed but Saint-Amans said one of the proposals would be that double taxation agreements between countries be amended to avoid the problem whereby neither country taxes the income. The European Commission recommended such a measure in December. "You need to neutralize the use of tax havens," Saint-Amans said.

Bottom Line

The reason why Apple has over $100 billion in overseas bank accounts is because of the existence of these tax avoidance strategies.

As an investor, I would be very curious to see what kind of agreement -- if any -- might be reached among G20 member countries, and what effect that might have on the market and stocks like Google, if such tax loopholes were to be alleviated in the future.

While many stocks like Apple are already priced quite cheap and can take a tax hit, companies like Google, that have a very high P/E, will probably not avoid a deep correction, if in the future it will be called upon to pay taxes to all those governments around the world where its sales are registered.

And while I don't think the market is factoring in the issue at the moment, it does not hurt to keep this issue in mind in the future, especially if you own some juicy, high P/E, overpriced multinational stocks.

Source: Google And Several Other Tech Heavyweights Might Have Tax Problems